Rakesh Kumar Gupta vs Ld. ITO, Ward 35(1), Delhi

PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:

This appeal is filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals), NFAC dated 10.12.2025 arising from the assessment order dated 21.12.2022 passed under section 143(3) read with section 144B of the Income Tax Act, 1961 (herein after referred to as 'the Act') by the National Faceless Assessment Centre, Delhi for the Assessment Year 2021-22.

The Assessee has raised the following grounds of appeal:

Brief facts of the case are that the assessee filed his return of income on 20.01.2022 and proceeding was completed under section 143(3) read with section 144B of the Act on 21.12.2022. The A.O made disallowance of bad debt amounting to Rs. 1,10,000/-, disallowance of commission expenses amounting to Rs. 27,99,500/- and charged interest u/s 234A, 234B & 234C of the Act.

Aggrieved, assessee was in appeal before the ld. CIT(A). The ld. CIT(A) dismissed the appeal of the assessee by confirming the addition of Rs.29,09,500/- and assessed income remains at Rs.77,64,630/-.

Aggrieved, assessee is now in appeal before us.

Before us, ld. Counsel for the assessee submitted that there are two additions; first is for Rs.1,10,000/- representing a business security deposit with Reliance Communications Ltd. written off as irrecoverable and second is commission expenditure of Rs.27,99,500/- paid to M/s. Lalit Polyplast Pvt. Ltd. and M/s. Go Plast Pvt. Ltd. As far as the first addition of security deposit written off is concerned, it is submitted that the AO did not dispute that there is a security deposit and did not dispute the genuineness of the same. It is submitted that the AO and CIT(A) regarded the same as claimed under section 36(2) as a “bad debt” whereas the same has been claimed under section 37 of the Act as allowable business loss.

With regard to commission disallowance, it is submitted that the confirmation from the parties were furnished before the AO and the addition was made only because the parties to whom the commission was paid did not file their returns.

Per contra, ld. DR relied on the order of the CIT(A).

We have heard the rival submissions and perused the material available on record. We find that the security deposit and its genuineness has not been doubted by the ld. AO. It is also undisputed that the security deposit was made out of business exigency of the assessee. The AO considered it as bad debt whereas the assessee treated the non-recovery of security deposit as a business loss. We are of the considered view therefore that as the loss of deposit was incurred in course of the assessee’s business, the same is allowable u/s 37(1) of the Act. The addition is accordingly deleted.

With regard to commission disallowance, we find that the commission payment was disallowed by the AO on the ground that the parties M/s Lalit Polyplast Pvt Ltd and M/s Go Plast Pvt Ltd, to whom commission was paid, had a common director and the rate charged by them was much higher than the rate charged by the assessee himself and the assessee could not furnish evidence for actual service rendered by them. On the other hand, the Revenue’s endeavour to disbelieve the assessee’s contention that commission was paid, cannot be fully justified. In this factual matrix, there is some element of failure to explain some of the commission paid, cannot be ruled out. Be that as it may, it is deemed appropriate, in larger interest of justice, that a lump-sum addition of 20% of the said commission expense only would be just and proper with a rider that the same shall not be treated as a precedent, so as to cover all loopholes. The assessee’s ground on this count is partly allowed.

In the result, appeal filed by the assessee in ITA No.1343/Del/2026 is partly allowed.